Ch 5 - Trading Internationally

Question 1

export

Answer 1

Selling abroad.

Question 2

import

Answer 2

Buying from abroad.

Question 3

merchandise (goods)

Answer 3

Tangible products being traded.

Question 4

services

Answer 4

Intangible offering being traded.

Question 5

trade deficit

Answer 5

An economic condition in which a nation imports more than it exports.

Question 6

trade surplus

Answer 6

An economic condition in which a nation exports more than it imports.

Question 7

balance of trade

Answer 7

The aggregation of importing and exporting that leads to the country-level trade surplus or deficit.

Question 8

classical trade theories

Answer 8

The major theories of international trade that were advanced before the 20ᵗʰ century, which consist of (1) mercantilism, (2) absolute advantage, and (3) comparative advantage.

Question 9

modern trade theories

Answer 9

The major theories of international trade that were advanced in the 20th century, which consist of (1) product life cycle, (2) strategic trade, and (3) national competitive advantage of industries.

Question 10

theory of mercantilism

Answer 10

A theory that suggests that the wealth of the world is fixed and that a nation that exports more and imports less will be richer.

Question 11

protectionism

Answer 11

The idea that governments should actively protect domestic industries from imports and vigorously promote exports.

Question 12

free trade

Answer 12

The idea that free market forces should determine how much to trade with little or no government intervention.

Question 13

theory of absolute advantage

Answer 13

A theory that suggests that under free trade, a nation gains by specializing in economic activities in which it has an absolute advantage.

Question 14

absolute advantage

Answer 14

The economic advantage one nation enjoys that is absolutely superior to other nations.

Question 15

theory of comparative advantage

Answer 15

A theory that focuses on the relative (not absolute) advantage in one economic activity that one nation enjoys in comparison with other nations.

Question 16

comparative advantage

Answer 16

Relative (not absolute) advantage in one economic activity that one nation enjoys in comparison with other nations.

Question 17

opportunity cost

Answer 17

Cost of pursuing one activity at the expense of another, given the alternatives (other opportunities).

Question 18

factor endowments

Answer 18

The extent to which different countries possess various factors of production such as labor, land, and technology.

Question 19

factor endowment theory (Heckscher-Ohlin theory)

Answer 19

A theory that suggests that nations will develop comparative advantages based on their locally abundant factors.

Question 20

product life cycle theory

Answer 20

A theory that accounts for changes in the patterns of trade over time by focusing on productlife cycles.

Question 21

strategic trade theory

Answer 21

A theory that suggests that strategic intervention by governments in certain industries can enhance their odds for international success.

Question 22

first-mover advantages

Answer 22

Benefits that accrue to firms that enter the market first and that late entrants do not enjoy.

Question 23

strategic trade policy

Answer 23

Government policy that provides companies a strategic advantage in international trade through subsidies and other supports.

Question 24

theory of national competitive advantage of industries

Answer 24

A theory that suggests that the competitive advantage of certain industries in different nations depends on four aspects that form a “diamond.” Popularly known as the “diamond” theory.

Question 25

resource mobility

Answer 25

Assumption that a resource used in producing a product for one industry can be shifted and put to use in another industry.

Question 26

tariff barriers

Answer 26

Trade barrier that relies on tariffs to discourage imports.

Question 27

import tariff

Answer 27

A tax imposed on imports.

Question 28

deadweight costs

Answer 28

Net losses that occur in an economy as a result of tariffs.

Question 29

nontariff barriers (NTBs)

Answer 29

Trade barriers that rely on nontariff means to discourage imports.

Question 30

subsidies

Answer 30

Government payments to domestic firms.

Question 31

import quotas

Answer 31

Restrictions on the quantity of imports.

Question 32

voluntary export restraints (VERS)

Answer 32

International agreements that show that exporting countries voluntarily agree to restrict their exports.

Question 33

local content requirements

Answer 33

Requirement stipulating that a certain proportion of the value of the goods made in one country must originate from that country.

Question 34

administrative policies

Answer 34

Bureaucratic rules that make it harder to import foreign goods.

Question 35

antidumping duties

Answer 35

Tariff levied on imports that have been "dumped" (selling below costs to "unfairly" drive domestic firms out of business).

Question 36

infant industry argument

Answer 36

The argument that if domestic firms are as young as "infants," in the absence of government intervention, they stand no chances of surviving and will be crushed by mature foreign rivals.

Question 37

trade embargos

Answer 37

Politically motivated trade sanctions against foreign countries to signal displeasure .